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<\/p>\nMore than 8.7 million pensioners are liable for tax, as frozen thresholds continue to drag growing numbers of retirees into the system<\/p>\n
17:13, 17 Mar 2026Updated 08:01, 18 Mar 2026<\/p>\n
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An expert shared some ways pensioners could cut back on their tax bill(Image: Getty)<\/p>\n
An expert has revealed five methods pensioners could utilise to reduce their tax bill. Currently, more than 8.7 million pensioners are subject to tax, as frozen thresholds persistently pull increasing numbers of retirees into the tax system.<\/p>\n
During November’s Autumn Budget<\/a>, Chancellor Rachel Reeves<\/a> confirmed the Personal Allowance would remain frozen at \u00a312,570 until April 2031.<\/p>\n As highlighted by the Daily Record<\/a>, recent predictions from the Office for Budget Responsibility (OBR) indicate that an additional 600,000 pensioners beyond previous estimates will be obliged to pay income tax in 2026\/27, rising to one million by 2030\/31.<\/p>\n While the State Pension is a contributory benefit subject to income tax, currently, pensioners relying solely on the State Pension avoid paying any tax. Elderly individuals in retirement with additional income pushing them above the threshold typically have tax deductions processed through PAYE or Self Assessment.<\/p>\n However, pension experts are urging older people to thoughtfully consider how they withdraw income from pensions<\/a> and savings to avoid unnecessary tax payments.<\/p>\n Helen Morrissey, head of retirement analysis at Hargreaves Lansdown<\/a>, warned that many retirees could face larger tax bills unless they carefully manage how they draw money from their pensions, savings and investments. She detailed five strategies pensioners could employ to make their retirement income more tax-efficient.<\/p>\n More than 8.7 million pensioners are now paying tax(Image: Getty)<\/p>\n Know your allowances<\/p>\n People start paying income tax once their income exceeds the \u00a312,570 Personal Allowance. Income above this level up to \u00a327,491 is taxed at 20 per cent in Scotland<\/a>, or up to \u00a350,270 in England and Wales. A guide to the full taxable income rates can be found on GOV.UK.<\/a><\/p>\n Savings income may also be taxed depending on your tax band. Basic rate taxpayers can earn up to \u00a31,000 in interest each year tax-free, while higher rate taxpayers can earn \u00a3500 before tax applies.<\/p>\n Work out how much income you need<\/p>\n Having a clear plan for how much income you need in retirement can help you avoid accidentally crossing into a higher tax band.<\/p>\n For example, withdrawing a large lump sum from a pension could push someone into paying a higher rate of tax in that year, even if they do not need all the money immediately.<\/p>\n READ MORE: Lloyds, Halifax and Bank of Scotland ‘alarming breach of data confidentiality’ update<\/a>READ MORE: Travel expert issues holiday ‘rise’ warning as jet fuel price surges 70 per cent<\/a>Plan how you use your tax-free pension cash<\/p>\n Most pensions allow people to withdraw up to 25 per cent of their private or workplace pension pot tax-free.<\/p>\n While many retirees take this money in one go, Ms Morrissey said it can sometimes make more sense to take it gradually through phased drawdown.<\/p>\n This allows pensioners to take tax-free cash in stages while leaving the rest of their pension invested.<\/p>\n Make use of ISAs<\/p>\n Savings held in an ISA can provide tax-free income in retirement.<\/p>\n Withdrawals from a cash ISA or stocks and shares ISA are not subject to income tax, capital gains tax or dividend tax, making them a useful way to supplement pension income without increasing a tax bill.<\/p>\n Some investors also move investments held outside tax-efficient accounts into ISAs or pensions to reduce future tax, although this can trigger a capital gains tax charge depending on the amount involved.<\/p>\n Having a clear plan for how much income you need in retirement can help you avoid accidentally crossing into a higher tax band(Image: Getty)<\/p>\n Plan as a couple<\/p>\n Couples may also be able to reduce their overall tax bill by making use of both partners\u2019 allowances.<\/p>\n Spouses and civil partners can transfer assets between each other on a \u201cno gain, no loss\u201d basis, helping them make the most of personal allowances and capital gains tax allowances.<\/p>\n However, these rules only apply to couples who are married or in a civil partnership and living together.<\/p>\n Ms Morrissey said understanding how income is taxed in retirement can help people keep more of their money.<\/p>\n She said: \u201cFrozen tax thresholds continue to pull more people into paying more tax, with receipts from income tax and capital gains tax continuing to rise.<\/p>\n \u201cThere are several things people can do to manage their tax bill and make their retirement income more efficient.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"More than 8.7 million pensioners are liable for tax, as frozen thresholds continue to drag growing numbers of…\n","protected":false},"author":2,"featured_media":484170,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[84,3522,4176,2218,4178,4174,4175,2221,474,56,54,55],"class_list":["post-484169","post","type-post","status-publish","format-standard","has-post-thumbnail","category-personal-finance","tag-business","tag-daily-record","tag-finance","tag-hmrc","tag-pensions","tag-personal-finance","tag-personalfinance","tag-state-pension","tag-tax","tag-uk","tag-united-kingdom","tag-unitedkingdom"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/484169","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/comments?post=484169"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/484169\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media\/484170"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media?parent=484169"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/categories?post=484169"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/tags?post=484169"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}![\"HMRC\"](\"https:\/\/www.newsbeep.com\/uk\/wp-content\/uploads\/2026\/03\/0_GettyImages-503364681.jpg\")
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